Banks Beginning to Hedge... Reprices for the Worse at Some

As I mentioned in my post earlier this morning, currently secondary is holding (down a minor 2 ticks), which in and of itself does not really warrant a reprice. With that said, a bank can reprice at any time for any reason, that is their perogative.

It is high noon Pacific Standard and we have seen a couple of reprices for the worse despite minor losses on the day. This reprice has to be a hedge play. What I mean by that, essentially the lender is pricing higher in anticipation that the market will worsen. In other words, they do not believe current levels are sustainable, and rather than wait for real losses in secondary, they will assume losses to come and price worse now which protects their position.

If this was a minor hedge play I would probably let it go and not report on it, but with a .25 worse reprice on Wells Fargo's wholesale rate sheet, that is a substantial difference, and suggests a significant retraction may be coming in secondary.

I should mention, this is simply one lenders read on the market, their hedging does not mean secondary will not continue to improve, it very well could. Moreover a bank can price themselves out of the market for various reasons (although there is nothing to signify this is the case right now which is why I'm reading it as a hedge play).

If you did not lock your rate this morning don't kick yourself, rates are still very good... lock now to stop the bleeding. If you're a risk taker (and you'd better be), you can hold out and hope we post new gains in secondary which would trigger an additional reprice either this afternoon, or better open rates tomorrow. I think this is strategy is very risky at this point in time; if you do decide to float make sure your loan officer is ready to lock your rate in immediately should things begin to turn for the worse.