End of Quarter Mortgage rates and what it means to valuations
Looks like the end of sep 30 mortgage rates FHA were approx at 3.40% for 30 year fixed mortgages dowd 26 basis points from the June end of quarter rate of approx 3.66%
The drop in rate usually favors paper valuations and retail sales on existing mortgages in inventory, Mortages at higher rates sell for higher prices because they pay more interest than the going market rates of interest. The second quarter AGNC had 689 million in unrealized paper gains on valuations from the decline in mortgage rates from 3/31 to 6/30.
However the other shoe dropped in the 2nd qtr as well;
AGNC took a hit in the second quarter on losses from sales of derivative instruments of 1.029 billion which means they were hedging the inventory against an up tick in rates from a recovering economy.. They hedged wrong, and now the fed is officially on the hook for QE3 at keeping rates low..
How did AGNC hedge for the third quarter did they still pay more for contract derivatives on the hook for hedging against higher interest rates.. If so there could be another hit in the making.. Its the one item thats almost impossible to predict when coming to forcasting the bottom line for mortgage companies.
As for solid dividend yields and future outlook end of thrid quarter and rolling into the 4th quarter with the feds and QE3, it would be appear to be a solid foundation internally for agnc exec to not hedge the ship on any near term rates increases.
Next 6 months for AGNC and other mortgage companies looks favorable even in a down market the re-investment of dividends here wiill produce exponential returns in 6 months.