Mortgage Rates Down Big, But Lagging Other Indicators

If you’re just getting caught up or otherwise haven’t heard, the biggest news in financial markets since last Friday has been the precipitous failure of Silicon Valley Bank.  While not necessarily a household name, SVB was the 16th largest bank in terms of assets and the 2nd biggest bank failure in history behind Washington Mutual 15 years ago.  Combine that with the fact that the 3rd largest bank failure in history (Signature Bank) occurred 2 days later and it’s no surprise that there’s some panic in financial markets about systemic risk (aka, a domino effect resulting in additional turmoil).  Panic in the financial markets is usually good for interest rates with US Treasuries almost always doing much better than mortgage rates.  This episode has been no exception.  The US Treasury coupon that markets often use as a benchmark for mortgage rates had fallen almost twice as much as mortgage rates on Friday, but the gap is starting to get a bit tighter. Each of the past two days saw the average lender move lover by roughly 0.2%, but it should be noted that there is a wide disparity between lenders and loan programs. Moreover, timing varies. Some lenders improved more on Friday and less today.  All we can do is comment on the averages and in that sense, this is the 2nd biggest 2-day drop in rates since March 2020.   Speaking of big things, the bigger question is “what’s next?”  What indeed!  There are more questions than answers right now.  Some say the bank failures are evidence that the Fed’s tough interest rate policies have “broken something,” and they must now dial back their intensity.  
Source: Mortgage News Daily

Fair Lending, Broker, Jumbo Programs; CFPB Reviews LO Comp; Former Fannie CEO to Run SVB

Where should we start the week? How about how predictions and forecasts are nearly worthless when they’re out of date one week later? How about with an old-fashioned run on a bank, eliminating any talk of another Fed rate increase. People wonder, “Where do I bank? Is it big enough? Is there enough regulation?” Lenders are making sure that their warehouse funding is not only from one bank, since nothing will shut down a faster than lack of liquidity and inability to fund loans. With the demise of Silicon Valley Bank and Signature Bank (below, see government announcement from yesterday), here’s a great graphic of how we ended up with just four megabanks in the USA. And how did regulators not see a huge bank failure coming? Regulation is in the news, not only in banking but also in loan officer compensation. The Consumer Financial Protection Bureau is requesting the public’s input on the economic impact of the mortgage loan originator rules on small mortgage companies. (More below.) Residential lenders are watching rates help them: Curinos tells us February 2023 funded mortgage volume decreased 62% YoY and 4% MoM. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures and drills into this data further here.) (Today’s podcast can be found here and this week is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology, and other services in the mortgage industry and in banking. Hear an interview with RentSpree’s Michael Lucarelli on the impact of homebuilder sentiment on the rental market and correlations with the purchase market.
Source: Mortgage News Daily

Biggest Rally For Short-Term Rates in Decades, Why?

Despite the announcement of a Fed/Treasury/FDIC backstop for SVB and Signature Bank, financial markets are trading as if current events imply a sea change for economic momentum, inflation, and the Fed rate hike trajectory.  It’s pretty much that simple. 

What’s not so simple is determining whether or not that trading will prove to be justified by changes in consumer behavior.  Also complicated will be the task of reacting to economic data for the month of February when the sea change wasn’t even an idea until last week.
Source: Mortgage News Daily

SVB > NFP = Supermassive Bond Rally

SVB > NFP = Supermassive Bond Rally

In a matter of 48 hours, Silicon Valley Bank has gone from being a company that we’ve never heard about or discussed to the highest profile bank failure since the Great Financial Crisis.  Such developments sound like they should be good for bonds and today was no exception.  The news certainly overshadowed today’s jobs report although traders also looked willing to take that in stride (higher headline job creation offset by lower wage growth and higher unemployment). The net effect was the largest rally in 4 months and one of the 5 biggest rallies of the past decade–at least for Treasuries.  MBS underperformed for reasons discussed in today’s video.

Econ Data / Events

Nonfarm Payrolls

311 vs 205 f’cast, 504 prev


0.2 vs 0.3 f’cast, 0.3 prev

Unemployment Rate

3.6 vs 3.4 f’cast, 3.4 prev

Participation rate +0.1

Market Movement Recap

08:53 AM Big overnight rally, additional gains after NFP, but giving up those gains now.  10yr still down 9bps at 3.816.  MBS up only an eighth, but there’s roughly a quarter point separating buyers and sellers (i.e. MBS would be up more if the market were more liquid).

10:03 AM Additional gains after NYSE open.  Best levels of the day with 10yr down almost 20bps at 3.712.  MBS up at least half a point, but it’s a moving target until liquidity improves. 

11:38 AM Giving up some of the gains now.  10yr up 9bps from lows but still down 14.5bps on the day at 3.764.  MBS up 3/8ths of a point.

03:12 PM Fairly sideways all afternoon.  10yr hovering near lows, down 21.2bps at 3.695.  MBS up only half a point.
Source: Mortgage News Daily

Wild Ride Before and After Jobs Report Due to SVB

The most notable development on jobs day has stunningly turned out to be the trading that came before the jobs report in the overnight session.  Bonds embarked on a fairly big rally, ostensibly due to Silicon Valley Bank news.  10yr yields were roughly 10 bps lower before NFP came in at 311k vs 205k f’cast.  Anyone could be forgiven for think such a number meant trouble for bonds, but bonds paradoxically rallied (with an eye on higher unemployment and lower wages).
After a brief correction, the gains continued all morning, ultimately adding up to the biggest rally day since November 10th.

But how much–if any–of this is due to the jobs report?  That’s a tough call, but only inasmuch as deciding if we want to give the jobs report ANY credit.  It may deserve anywhere between 5-20%, but the market is clearly trading the SVB news.  One of the clearest indications of that comes from the stock market.
The prevailing trend in stocks and bonds has been for both sides of the market to rally and sell together based on shifts in Fed rate hike expectations.  This makes for the classic mirror image trading pattern we sometimes refer to as the “Fed accommodation trade.” 

Over the past 2 days, however, as the SVB news intensified, markets shifted back to the old school “risk-on/risk-off” trade.

That doesn’t mean this move isn’t “real.”  To be sure, Fed Funds Futures are reacting as well.  That said, inflation is still the big picture driver of rate momentum.  SVB news only matters in the big picture if it kicks off a mini-wave of bank failures that somehow manage to impact inflation or otherwise serve as a canary in a coal mine for a harder economic landing.  Markets may be braced for that possibility today, but they’ll forget all about it if next week’s CPI comes in hot.  Conversely, if CPI comes in cooler, it could add to the momentum.  Bottom line: we’re still data dependent, but now with a nice little boost to prevailing levels.
Source: Mortgage News Daily

Crypto Escrow, Technology, Non-Warrantable Condo Products; Investor Updates, Mergers and Employment News

Julie C. writes, “Did you know that every “c” in “Pacific Ocean” is pronounced differently?” As I head to Northern California, which borders the Pacific, this morning, I recalled this thought: “Sometimes you meet someone and you know from the first moment that you want to spend your whole life without them.” I am sure that people don’t feel that way about loanDepot’s Anthony Hsieh, although the LD board of directors is wary. Recall that Anthony was forced out of his position as Executive Chairman a month ago, but given that he’s the founder of the company, and still a large stockholder, he has sway and was in the news this week about “shaking up” LD’s board. (More loanDepot and other wholesaler news below… remember Impac Funding?) (Today’s podcast can be found here and this week is sponsored by SimpleNexus, an nCino company and homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence.) Broker and Lender Products, Software, and Services “Our Newrez Correspondent Regional Sales Managers are hitting the road and traveling coast to coast this Spring. You can catch David Pistone and Baird Marble in San Diego March 23-25 at the MCT Conference, Sarah Johanns in Coralville April 3-5 at the Iowa Mortgage Association Conference, Beverly Jordan , Rebecca Yonaka and John Dubisky in Memphis April 4-5 at the Great River Conference, Tom Winston, in San Antonio April 30-May 2 at the TMBA Annual Conference, Alex Weems, Tom Van Auken, Tony Petronio, Chris Nobile, and Rob Niess in Atlantic City May 2-4 at the New Jersey MBA Conference, Patty Devita, and Tom Van Auken in Maryland May 8-10 at the Mid Atlantic Regional Conference, and wrapping up in the Big Apple with our entire sales team May 21-23 at the National Secondary Conference. See in-person why our Correspondent division is one of the best in the industry! Apply now or contact us to learn more.”
Source: Mortgage News Daily

Mortgage Rates Hold The Line Ahead of a Very Important Jobs Report

While the Federal Reserve doesn’t directly dictate mortgage rates, the outlook for Fed rate hikes matters a great deal.  In the days and weeks leading up to almost every Fed announcement in the past year, the market has had a very clear sense of how quickly the Fed would be hiking as well as the general levels at which it would likely be done hiking. That had been the case for the upcoming meeting as well.  There really hadn’t been any doubt that the Fed would continue to hike by 0.25% increments.  But several big ticket economic reports caused traders to rethink the outlook.  In fact, even Fed Chair Powell admitted that no decision has been made yet and things could change after the jobs report and next week’s inflation data. That makes Friday’s jobs report incredibly important for rate momentum in the short term.  The data will be released at 8:30am ET.  If it’s much stronger than expected, mortgage rates will likely be moving quickly higher.  If it misses forecasts, rates should fall.  Either move would be tempered by anticipation for next week’s CPI (consumer price index… a key inflation report that could have just as much of an impact. As for today, rates started out modestly higher, but most lenders ended up offering mid-day improvements that brought the average rate slightly below yesterday’s.
Source: Mortgage News Daily

Thursday Was Nice, But It's All About Friday

Thursday Was Nice, But It’s All About Friday

There wasn’t much for the bond market to sink its teeth into on Thursday.  Traders focused on higher jobless claims numbers right out of the gate with the market reaction FAR outpacing the suggestion from the data.  The reaction also suggests an extreme level of sensitivity to Friday’s jobs report.  In other words, if jobless claims is a gentle breeze of market movement potential, NFP is a hurricane.  The gentle breeze was helpful today, but all that matters in the bigger picture is whether or not the hurricane is blowing in the same direction.

Econ Data / Events

Jobless Claims

211 vs 195 f’cast, 190 prev

Challenger Layoffs

77.77k vs 102.943k prev

Market Movement Recap

08:35 AM unchanged to slightly weaker overnight, but bouncing back a bit after Jobless Claims data.  10yr and MBS currently unchanged (MBS are showing 2 ticks weaker, but they would be unchanged or better if there were liquidity)

11:17 AM Some weakness between 10:15 and 11am, but bouncing back a bit now.  10yr down 1.9bps at 3.97.  MBS up an eighth on the day.

01:28 PM Very decent 30yr auction.  Bonds rallying in response.  10yr down 7bps at 3.919.  MBS up 10 ticks (.31).

03:10 PM Rally stalled out just after 2pm, but gains remain largely intact.  10yr down 6.2bps at 3.927 and MBS still up 10 ticks (.31).
Source: Mortgage News Daily

Home Equity, AOT, Outsourcing, First-Time Homebuyer Tools; Dept. of Justice vs. a Detroit Broker

I wonder if Fed Chair Jerome Powell ever hums to himself, “Everybody’s talking at me, I can’t hear a word they’re saying…” (Angelina Jolie’s father, John Voight, is alive and doing fine.) The bond market has heard him loud and clear, however. Rates are back up, and companies are wondering about if the cuts they made in the second half of 2022 are enough. Rather than reduce headcount there are other ways to lower expenses, and “A Penny Saved is a Penny Earned” is the current STRATMOR blog and discusses things other than layoffs. On a larger scale, you could have gambled the whole company and lost… One of the cryptocurrency industry’s most prominent banks, Silvergate Capital Corp., announced on Wednesday its intention to shut down and voluntarily liquidate. (Today’s podcast can be found here and this week is sponsored by SimpleNexus, an nCino company and homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence. Todays has an Interview with Frasco’s Michael Famiglietti on the mortgage risk mitigation space and various mortgage investigations to assist originators, insurers, investors and servicers.) Broker and Lender Products, Software, and Services “No one else has a user-friendly dashboard like United One’s new Tax Monitoring system” – Senior Mortgage Executive. New Tax Monitoring Technology Provides Instant Insight into Loan Portfolio. United One’s new industry-leading technology simplifies real estate Tax Monitoring by providing instant insight into the client’s loan portfolio and highlights delinquencies using real-time data, all within its single-screen dashboard. It offers flexible and custom reporting, bulk processing capabilities, as well as ease of onboarding via electronic file transfer capabilities. The recently enhanced system provides solutions for single parcels through large development tracts and allows clients to automatically generate customizable delinquency letters. Using real-time data, solely searched by United One, it automatically provides updates to the client’s system. To learn more about United One’s new Tax Monitoring technology, click here to schedule a demo with our team.
Source: Mortgage News Daily

New Normal For Labor Market Data?

After a ho-hum and mostly sideways overnight session, bonds are starting the day with a surprisingly swift reaction to the Jobless Claims data.  While this report may seem similar to the big monthly jobs report (after all, both generate an unemployment rate), they have never been in the same league when it comes to market movement potential.  To be sure, that is still the case, but the difference now is that markets are clearly expressing at least some interest in the weekly Claims data in terms of volume and volatility–something we’ve only seen a handful of times, ever.
We can further confirm the nature of the market’s reaction by considering stocks as well.  In fact, both before and after the Claims data, stocks and bonds traded in their “Fed Friend or Foe” pattern.  This happens when data suggests a friendlier Fed and both sides of the market rally or when data suggests a more hawkish Fed and both sides of the market sell-off.  In other words, the equally noticeable rally in stocks at exactly the same time as bonds suggests the market is definitely trading Jobless Claims for its impact on Fed policy.

Here’s the biggest takeaway: if this data was worth this much of a reaction, then the potential impact of tomorrow’s jobs report is more massive than normal.
Source: Mortgage News Daily