Salient to Investors:

The era of increasingly cheap money is showing signs of ending in the mortgage bond market.

Bill Gross at Pimco said bond investors should anticipate reduced returns as bets on mortgage securities are over in terms of the capital appreciation – expect total returns in 2013 of 3 to 4 percent.

Brean Capital said lenders’ fattened margins appear to be contracting as banks maintain volumes by absorbing the costs of lower bond prices rather than passing them on to borrowers.

Jason Callan at Columbia Mgmt Investment Advisers doesn’t think the rise in yields is sustainable short-term but would be a distinct negative for the sustainability of the housing recovery. said the average 30-yr fixed-rate mortgage was 3.54 percent on Jan. 4 versus the record low of 3.36 percent on Dec. 7. Monthly payments of $1,310 support a $275,000 30-year loan with rates at 4 percent.

George Goncalves at Nomura said the “Fed won’t slam on the easing brakes when it does not know how much damage the fiscal cliff and upcoming debt ceiling/spending cuts concerns will have on business activity.

The S&P/Case Shiller index shows home values in 20 metropolitan areas climbed 9 percent from their trough through October.

John Sim at JPMorgan said home sales tied to soured loans will rise to a record 1.7 million in 2013, after slowing in 2010 and 2011 and then reaching 1.6 million in 2012 – 1 million seized properties, and 700,000 short sales.

Joshua Rosner at Graham Fisher says any exit of cash investors would depend on the rapidity of the mortgage rate rise. In November 2012, cash sales were 30 percent of transactions, investor sales were 19 percent.

Todd Hagerman and Robert Greene at Sterne Agee & Leach said the largest loan originators saw their margins expand to 2.5 percent in 2012 versus the normal 0.65 percent.

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