Blogging With The Krew

Check some recent articles and posts about the industry.

HMDA Review, Corresp., Data Mining, Processing Tools; Agency Credit Scoring

“I forgot to put the seat belt on my five-year-old boy this morning and as we were leaving the trailer park, somebody shouted, ‘You're an irresponsible father!’ I yelled, “Who the hell said that?! Stop the car, son!’” Lenders know that not all manufactured homes are trailers, and in fact there are some great MHs out there. In a few weeks I head to Michigan for the MMLA conference. It turns out that that over 25 percent of manufactured homes in Michigan are owned by private equity or similar entities per the Private Equity Manufactured Housing Tracker. In 2020 and 2021, they accounted for 23 percent of all manufactured home purchases, up from 13 percent between 2017 and 2019. Housing market trends will be discussed in today's The Big Picture will start at 11:15AM PT, with Pete Mills from the Mortgage Bankers Association also discussing upcoming policy developments, GSE reform and the MBS guarantee, and what the MBA is watching. (Today’s podcast can be found here and this week’s are sponsored by Ocrolus. Ocrolus is transforming the mortgage industry with AI-powered data and analytics, featuring cutting-edge tools for automated indexing, income analysis, and discrepancy insights that empower underwriters to make timely, confident lending decisions. Hear an interview with Garrett, McAuley & Co.’s Joe Garrett on the future of mortgage commissions, debating whether automation, shrinking margins, and smarter underwriting tools will make 100-basis points payouts a thing of the past.)

Decent Start Despite Stronger Retail Sales Headline

There were multiple economic reports on tap this morning (4 of them in the 8:30am slot), but the headliner on a Retail Sales day is almost always going to be Retail Sales! In today's case, it came out much stronger than expected.  Even when stripping out autos/gas/building materials (i.e. the "control group"), sales rose 0.5% vs a 0.3% forecast. This is the sort of thing that would normally put pressure on bonds, but that's not the case today.  Why? Revisions are one consideration. Last month was revised down by the same amount that today's number beat the forecast. Inflation is another consideration.  After adjusting for it, the control group continues to trend lower, not higher. In other words, sales may be increasing in terms of dollars, but people are buying less "stuff."  Bonds reacted by trading the headline at first (higher yields), but only briefly.  Traders were all over the "lower inflation-adjusted spending" narrative and quickly traded 10yr yields about 5bps lower from the highs.

Bonds Give Free Preview of Post-Powell Momentum

Bonds Give Free Preview of Post-Powell Momentum Everyone loves a good free preview, but not all of the bond market enjoyed today's version. It involved reports that Trump was considering firing Powell. Forget the nitty gritty details because markets took it very seriously if volume is any indication (highest since tariff announcement week in April). Those who pay close attention were not-at-all-surprised to see longer-term yields RISING in response. After all, a more dovish Fed could only directly control overnight rates.  This is enough to maybe help 2yr Treasuries and under, but from there on up, bonds price in higher inflation and lower global confidence in the dollar and US Treasuries. Trump later said he's not considering firing Powell, but bonds remained skeptical with 2yr vs 10yr spreads only reversing about half of the mid-day spike.  This shows that traders felt a bit spooked about owning longer term debt in a world where something like this might actually happen, and thus re-allocated toward shorter-term debt for now.  Scary-sounding stuff aside, 10yr yields and MBS both made solid enough gains on the day.  All the drama transpired behind the scenes as far as rates were concerned (apart from a small handful of lenders who repriced for worse before repricing for the better). Econ Data / Events Core PPI M/M 0.0 vs 0.2 f'cast last month revised to 0.4 from 0.1 Core PPI Y/Y 2.6 vs 2.7 f'cast, 3.0 prev Market Movement Recap 08:32 AM Slightly stronger after PPI.  MBS up 3 ticks (.09) and 10yr down 2.4bps at 4.46 11:42 AM Bonds selling off on headlines regarding Trump considering firing Powell.  MBS now unchanged on the day and 10yr nearly unchanged at 4.48 12:41 PM Headlines retracted, but bonds not retracing the weakness.  10yr still close to unchanged at 4.48.  MBS up 2 ticks (.06) on the day

Mortgage Rates Mostly Sideways After Dodging Mid-Day Drama

This morning brought another inflation report. Given the negative reaction to yesterday's inflation data, there was some cause for concern. Thankfully, today's data was more unequivocally acceptable for the bond market and--thus--interest rates. Bonds improved fairly well into the late AM hours, but then, the drama! Actually, there wasn't much drama for mortgage rates, but behind the scenes, lenders came very close to making mid-day adjustments toward higher rates.  Some of them actually did, but most of those lenders later reversed course after the drama faded. So what was it? In a nutshell, Trump discussed firing Fed Chair Powell with some other lawmakers.  Word got out. Markets reacted.  Folks who follow this kind of stuff closely were not surprised to see that neither stocks nor longer term bonds (the stuff that dictates mortgage rates) were happy.  To be clear, 10yr Treasury yields moved HIGHER, not lower, even though the assumption is that Powell's replacement would be more interested in cutting the Fed Funds Rate. This is just the latest confirmation of something we often repeat: the Fed Funds Rate does not dictate mortgage rates even though the two can generally and broadly correlate over time.  It's VERY important to note that the broad correlation is due to the fact that mortgage rates and the Fed Funds Rate share common motivations.  If the Fed were to cut rates in a more arbitrary way (one that shows less regard for those motivations), it could actually be bad for longer term rates like mortgages.  And today, it almost was!

TBA Settlement, Processing, HELOC, Purchase Advice Mgt. Tools; JPMorgan to Charge For Info?

JPMorgan told FinTechs that it will charge for access to its customers’ bank information. The fees would bring big bucks to JPMorgan but eat into the profit margin of any lender or credit reporting agency or verification service. Will this become a trend with other depositories? Lenders and their originators, along with MBS investors, carefully watch trends in income and individuals. The gig economy, driven by on-demand work and services like rideshares and food delivery, is a growing part of the U.S. economy and primarily consists of sole proprietorships tracked by the U.S. Census Bureau’s Non-employer Statistics (NES) program. In 2023, the top five gig-related industries by number of individual proprietors were Couriers and Messengers, Taxi and Limousine Services, Janitorial Services, Independent Artists/Writers/Performers, and Child Care Services, all showing notable growth from 2018 figures. While not all non-employer businesses are part of the gig economy, these industries highlight the increasing prevalence and economic significance of gig-based work. Back to JPMorgan, some lenders are doing well, at least in the big bank world. JPMorgan reported that mortgage origination volume increased 26 percent YOY to $13.5 billion. Despite the jump in volume, production income actually fell, from $157 million to $151 million, but this was offset by an increase in servicing income. Wells Fargo clocked in at $7.4 billion in the quarter versus $5.3 billion for the second quarter last year. (Today’s podcast can be found here and this week’s are sponsored by Ocrolus. Ocrolus is transforming the mortgage industry with AI-powered data and analytics, featuring cutting-edge tools for automated indexing, income analysis, and discrepancy insights that empower underwriters to make timely, confident lending decisions. Hear an interview with Curinos’ Ken Flaherty and Rich Martin on key opportunities for lenders to attract, retain, and grow more profitable customer relationships, across both first mortgages and home equity products.)

Watching Rates

Check our some recent articles and posts about current rates.

Mortgage Rates Mostly Sideways After Dodging Mid-Day Drama

This morning brought another inflation report. Given the negative reaction to yesterday's inflation data, there was some cause for concern. Thankfully, today's data was more unequivocally acceptable for the bond market and--thus--interest rates. Bonds improved fairly well into the late AM hours, but then, the drama! Actually, there wasn't much drama for mortgage rates, but behind the scenes, lenders came very close to making mid-day adjustments toward higher rates.  Some of them actually did, but most of those lenders later reversed course after the drama faded. So what was it? In a nutshell, Trump discussed firing Fed Chair Powell with some other lawmakers.  Word got out. Markets reacted.  Folks who follow this kind of stuff closely were not surprised to see that neither stocks nor longer term bonds (the stuff that dictates mortgage rates) were happy.  To be clear, 10yr Treasury yields moved HIGHER, not lower, even though the assumption is that Powell's replacement would be more interested in cutting the Fed Funds Rate. This is just the latest confirmation of something we often repeat: the Fed Funds Rate does not dictate mortgage rates even though the two can generally and broadly correlate over time.  It's VERY important to note that the broad correlation is due to the fact that mortgage rates and the Fed Funds Rate share common motivations.  If the Fed were to cut rates in a more arbitrary way (one that shows less regard for those motivations), it could actually be bad for longer term rates like mortgages.  And today, it almost was!

Mortgage Rates Move Higher Despite Decent Inflation Reading

Mortgage rates are based on bonds and bonds don't like inflation.  When inflation reports are higher than the market expected, rates tend to rise, all other things being equal.   But today's inflation numbers were a bit lower than the median forecast. This scenario is typically more likely to push rates lower.  Indeed, in the first hour following today's Consumer Price Index (CPI) release, bond trading implied lower rates.  Then things changed.   Recall our closing reminder from yesterday which qualified the conventional wisdom reactions, saying "even then, traders will look into the underlying composition of the number and assess whether changes were driven by tariff-dependent categories. For example, if CPI comes in at 0.2, but it was due to a big shift in rental costs or health care, rates could still rise if tariff-dependent categories showed higher inflation." This is essentially what happened. The "shelter" component of CPI (the one that measures housing costs and that has been stubborn in moving down as quickly as hoped) fell to its lowest monthly level since inflation first began soaring in 2021. This is great news for inflation in general and it contributed to the initial market reaction. Then the "yeah buts" showed up. At issue is the fact that tariffs are increasingly having an impact on certain CPI categories. Granted, it's not enough to raise the overall price index above forecast levels, but the market decided it was enough to justify the Fed's "wait and see" approach on rate cuts. Notably, today's reaction in terms of the Fed rate cut outlook was far milder than the reaction after the jobs report 2 weeks ago, but this one is perhaps more frustrating because the headline inflation numbers suggested the opposite move for rates.

Mortgage Rates Just a Hair Higher Ahead of Important Inflation Report

Today's movement in mortgage rates, in and of itself, is barely worth mentioning.  The average lender remains close enough to Friday's levels but is technically just a hair higher.  That fact is offset by the counterpoint that most of the past two months saw higher rates. The future is far more interesting than the present--specifically, the immediate future. Tomorrow morning brings the release of the Consumer Price Index (CPI). This is one of the most important economic reports as far as interest rates are concerned and tomorrow's example  is especially notable. This CPI marks the first major opportunity for the official data to show (or not show) a meaningful impact on inflation from tariffs. Because the Fed has acknowledged this and because the prospect of tariff-driven inflation is the reason they're waiting to cut the Fed Funds Rate, things could get pretty spicy (in a good way) if CPI fails to show the expected uptick.   Conversely, there's every possibility that tariff-driven inflation does indeed show up in the data, in which case the path forward for rates is slightly less certain.  It would really depend on the extent of the shift. As it stands, the market is expecting the monthly change in core inflation to rise from 0.1% to 0.3% in this report. If it instead rose to 0.4% or higher, rates would likely move up.  0.2% or lower, and rates would likely recover a bit.  But even then, traders will look into the underlying composition of the number and assess whether changes were driven by tariff-dependent categories.  For example, if CPI comes in at 0.2, but it was due to a big shift in rental costs or health care, rates could still rise if tariff-dependent categories showed higher inflation. Granted, this is a big "if," but the point is that the market will consider the nuance under the numbers as opposed to pure headlines. 

Highest Mortgage Rates of The Week, Just Barely

Yesterday, we characterized the prevailing mortgage rate momentum as "broadly sideways," and while that's still very true in the bigger picture, words like "up" and "higher" might need to be sprinkled in this week. For those with a glass-half-empty approach, today's rates are the highest of the week and the highest since June 24th.  For the optimists (and, in our view, the pragmatists), today's rates are virtually identical to those seen on Tuesday.  Specifically, our 30yr fixed rate index is only 0.01% higher today--the smallest possible change. Motivation for movement in rates and in the underlying bond market was in short supply this week.  It would make more sense to view it as sort of hangover from last week's party (multi-month lows last Tuesday) followed by a wake up call at the end of last week from the stronger-than-expected jobs report. Bonds (which drive rates) care about big-ticket economic data and the jobs report is one of the biggest tickets. If there's a worthy competitor at the moment, it's next week's Consumer Price Index (CPI)--an inflation report that may or may not show the onset of tariff-driven inflation. Why would that matter?  First off, bonds simply don't like inflation and rates will generally be moving higher if inflation is moving higher. Additionally, the prospect of tariff-driven inflation is preventing the Federal Reserve from initiating rate cuts that would otherwise be justified by the current landscape of econ data and monetary policy.