DPA, CRM, QC, Asset Management Products; Deep Look at Housing and Rates: Not for the Faint-Hearted

Who can think of September 21st without thinking about Earth, Wind, and Fire? Yesterday I was on a United Airlines flight out of San Francisco to Savannah, in Row 14. There was no row 13… but I knew what row I was really in! Speaking of numbers, obvious or otherwise, this article caught my eye: The Average American Spends This Much on a Mortgage.” Credit unions and banks have obviously seen their residential lending volume drop but are usually able to move personnel to other departments within the company rather than lay them off. Figuring out how to increase business is a big topic, and Black homeownership is being discussed. For some perspective I turned to the St. Louis Fed with its extensive library of graphs. In fact, if you want to look at the opportunity for growth, look no further than the disparity in homeownership between White, Black, Asian, and Hispanic populations. (Today’s podcast can be found here and this week’s is sponsored by the Trade-In Mortgage powered by Calque. Homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Lenders can help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. Hear an interview with Planet Home’s James de Palma on the current servicing market and trends in asset management.) Lender and Broker Software, Programs, and Services More than 40 million people will resume making federal student loan payments in October following a three-year pause. The resumption of payments will drive up DTI for many prospective homebuyers, compounding current affordability challenges. With monthly payments for bachelor’s degree holders averaging $267, and master’s degree holders averaging $567, how do you plan on helping people with student loan debt make their dreams of homeownership come true? Join Catalina Kaiyoorawongs of LoanSense and Dave Savage of TrustEngine at 2 pm ET today for an ACUMA Inside Track webinar on loan strategies and federal programs that can help homebuyers with federal student loans. Register now to save your seat.
Source: Mortgage News Daily

Mortgage Rates Rise After Fed's Updated Rate Forecast

The Fed did not hike its policy rate today, but it did release updated forecasts that showed the average Fed member expects rates to be half a percent higher at the end of 2024 and 2025 compared to their forecasts released in June. The market was expecting a higher average forecast, but not that high.  The result was broad bond market weakness.  While that weakness was concentrated in the shortest-term bonds, longer-term rates (like those for mortgages) also took a hit. The inspiration for that weakness should not be confused with the Fed announcement itself or the press conference with Fed Chair Powell afterward.  As always, there are many comments that can be singled out as having an impact, but the only truly new and surprising news was in the updated forecasts. Notably, these forecasts can be wildly inaccurate.  The Fed knows this.  The market knows it.  But the market is only relying on the forecasts to measure the Fed’s attitude toward its rate-setting policy–not to accurately predict actual rate levels.  Bottom line: the Fed continues choosing to talk tough on the rate outlook and the market has no choice but to comply.  This will only change when the economic data looks gloomy enough to soften the Fed’s stance. In context, today’s mortgage rate increase wasn’t extreme.  In fact, the day began in slightly better territory and only went higher after lenders changed rates in the afternoon.  Versus yesterday afternoon, the change is minimal in the bigger picture.  We’re still not back to the long term highs seen at the end of August. 
Source: Mortgage News Daily

Higher For Longer

Higher For Longer

Today’s Fed announcement was largely as expected: no rate hike, “data dependent,” and “higher for longer” communicated via the dots.  The direction of the change in the dot plot is no surprise, but the magnitude was.  The median Fed member moved their forecast up by 0.50% through both 2024 and 2025.  Granted, those forecasts have a poor track record of predicting the future, but they speak to the Fed’s will to continue hiking if the data remains resilient. Bonds held their ground reasonably well at first, but late day position squaring resulted in a break to new long term yield highs. 

Econ Data / Events

Fed Dot Plot Changes


5.625% (range 5.375% to 5.625%); prior 5.625%


5.125% (range 4.375% to 6.125%); prior 4.625


3.875% (range 2.625% to 5.625%); prior 3.375%


2.875% (range 2.375% to 4.875%)

Market Movement Recap

09:24 AM gradually but modestly stronger throughout the overnight session.  MBS up 6 ticks (.19). 10yr down 3.4bps at 4.329.

01:24 PM 10yr down 4.6bps, near best levels at 4.317.  MBS up 6 ticks (.19) again after some AM volatility.

02:05 PM Sharply weaker after Fed announcement.  MBS down 3 ticks (.09) and 10yr up to 4.359

03:22 PM Volatile 2-way trading since Fed.  Powell press conference is over.  MBS down 7 ticks during moments of illiquidity (-0.22) but only 1-2 ticks otherwise (0.03-0.06).  10yr down 1bp on the day at 4.353.

04:41 PM Weakest levels of the day.  MBS down 9 ticks (.28) and 10yr up 3.4bps at 4.397.
Source: Mortgage News Daily

What Can The Fed Say That We Don't Already Know?

Learning how to make a big deal out of every Fed day is a requirement for passing the market commentary test.  But the often-overlooked extra credit can be earned in an elective: “How to be smugly dismissive about the potential impact of a Fed d…
Source: Mortgage News Daily

Credit Verification, MSR Acquisition, Non-QM, Tax, Outsourcing Products; STRATMOR and CX; Timeline for Credit Score Changes

Today is 092023 and I head to Savannah, GA for the SECUREN (credit union) conference. Did you know that the last day of 2023 is 123123? In other “fun with numbers,” as a stockholder in a lender, how’d you like $5 million because your company couldn’t keep its costs down? The median sale price per square foot in Savannah is $197, up 13 percent since last year, if you believe Redfin. Want to build wealth? The median sale price per square foot for new single-family homes in the U.S. has increased a whopping 368 percent since 1980. Additionally, the median square footage for homes in the U.S. has increased 52 percent since 1980, while the median sale price has increased 609 percent. Compared to 2008, the peak financial crisis, home buyers today face an 85% higher median sale price per square foot of homes. California is the most expensive state when looking at price per square foot. Highest and lowest cities? San Jose at $845 per square foot, Cleveland at $133 per square foot. (After 5:30 AM PT today’s podcast can be found here and this week’s is sponsored by the Trade-In Mortgage powered by Calque. Homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Lenders can help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. Hear an interview with first time homebuyer Ben Cottingham on how he made his choice of lender and how his originator best helped him throughout the process.)
Source: Mortgage News Daily

Mortgage App Volume Rebounds from Holiday Doldrums

Mortgage application activity bounced back from the holiday-shortened prior week but is still running significantly below historic levels. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, increased 5.4 percent on a seasonally adjusted basis during the week ended September 15. On an unadjusted basis, the Index increased 16 percent compared with the week that started with Labor Day. The Refinance Index rose 13 percent week-over-week and was 29 percent lower than the same week in 2022.  The refinance share of mortgage activity increased to 31.6 percent of total applications from 29.1 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index gained 2.0 percent compared to the prior week. The unadjusted Purchase Index increased 12 percent and was 26 percent lower than the same week one year ago. [purchaseappschart] “Mortgage applications increased last week, despite the 30-year fixed rate edging back up to 7.31 percent – its highest level in four weeks,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications increased for conventional and FHA loans over the week but remained 26 percent lower than the same week a year ago, as homebuyers continue to face higher rates and limited for-sale inventory , which have made purchase conditions more challenging. Refinance applications also increased last week but are still almost 30 percent lower than the same week last year.”
Source: Mortgage News Daily

Mortgage Rates Modestly Higher Ahead of Fed Announcement

The FOMC (Federal Reserve’s Open Market Committee) is what most people are referring to when they say “the Fed.” This is the group that meets 8 times a year to decide the ideal level of the Fed Funds Rate.  The Fed Funds Rate sets an anchor point for the shortest-term borrowing.   Notably, the Fed doesn’t directly set mortgage rates, but even when the Fed makes no changes to the Fed Funds Rate, there can be large, indirect effects on mortgages and just about every other type of interest rate. With that in mind, the Fed is indeed not expected to raise the Fed Funds Rate when it announces the results of its 2-day meeting tomorrow afternoon, but there are many other ways it can have an impact on broader rate momentum. One of the most reliable sources of market volatility on Fed days has been the “dot plot.” At the same time as the official rate announcement, the Fed also releases economic forecasts which include each Fed member’s expectation for Fed Funds Rate levels at various points in the future.  These levels are represented as dots on a chart, hence the “dot plot” (or simply “dots”) nomenclature.  Some market watchers think the dots will show the Fed expecting to hold the Fed Funds Rate “higher for longer.”  That’s the sort of thing that could result in upward pressure on mortgage rates despite the absence of an official Fed rate hike.  On the other hand, “higher for longer” is a fear that has arguably already been traded by financial markets to a large extent.  
Source: Mortgage News Daily

Pre-Fed Jitters Result in Highest Yields Since 2007

Bonds Get Pre-Fed Jitters After a Mostly Flat Day

Bonds began the day in moderately weaker territory, mostly following an overnight sell-off in Europe.  Trading levels had recovered enough by 10am that we could consider the overall trend to be “mostly flat.”  In fact, MBS came fairly close to breaking even just before 2pm, but then things went sideways.  Actually, “sideways” is the wrong word.  Prices dropped somewhat abruptly and Treasury yields spiked to new super-long-term highs.  Without any clear scapegoats, we’re forced to rely on explanations filed under the category of pre-Fed jitters.  One would think traders already knew how jittery they were before 2pm today, but sometimes you don’t know until you see how jittery everyone else is.

Econ Data / Events

Housing Starts

1.283m vs 1.44m f’cast

Building Permits

1.543m vs 1.443m f’cast

Market Movement Recap

09:06 AM Selling momentum building.  10yr up 6bps at 4.361. MBS down almost an eighth.

10:44 AM Nice recovery but still weaker on the day.  10yr up 2.8bps at 4.329.  MBS down an eighth. 

01:34 PM Best levels of the day for MBS, down only 2 ticks.  10yr up 3.2bps at 4.333

02:46 PM Quickly down 7 ticks in MBS.  10yr up 5.8bps at 4.359. 
Source: Mortgage News Daily

Mixed Results for August Construction

Results of the August Residential Construction report from the U.S. Census Bureau and the Department of Housing and Urban Development were decidedly mixed. While permits were issued at a rate higher than anticipated, housing starts sunk to the lowest level since June 2020, Construction was started on residential units at a seasonally adjusted annual rate of 1.283 million, an 11.3 percent decline from the July level of 1.447 million units. Further, the earlier results represent a downward revision from the original estimate of 1.452 million. Both Econoday and Trading Economics had consensus forecasts of 1.44 million units. Starts were 14.8 percent lower than in August 2022. Single-family starts were down 4.3 percent from July to an annual rate of 941,000. This, however, was 2.3 percent higher than the level a year prior. Multifamily starts plunged 26.3 percent month-over-month and 41.0 percent on an annual basis to a rate of 334,000 units. Permits for residential construction rose to a seasonally adjusted rate of 1.543 million units, a 6.9 percent increase from the 1.443 million rate in July and the highest level in ten months. Permits were, however, still down 2.7 percent on an annual basis. The number was about 100,000 units higher than consensus estimates. Construction permits were issued for 949,000 single-family homes on an annualized basis, a 2.0 percent increase from July and 7.2 percent more than a year earlier. Multifamily permits were 14.8 percent higher than the prior month but, at an annualized 535,000 units, down 17.7 percent from August 2022.
Source: Mortgage News Daily

Pre-Fed Narrative Sails On, But Timbers Nearly Shivered

Arrr, me hearties! Last week, there be a mighty surge towards them long-term highs in the Treasury yields. But alas! With no bounty of econ data to stir the souls of treasure seekers, the market With no grand loot of data on the horizon, the market be more inclined to keep powder dry afore this Wednesday’s reckoning with the Fed. This tale nearly met an early end after the market took a cannonball shot in the mornin’, makin’ us all clutch our doubloons as 10s had a scrape with new multi-decade peaks. Alas, fairer winds prevailed and the ship stays afloat for its date with destiny.
In English now (debatable):
After last week’s surge toward long-term highs in Treasury yields, and with an absence of big ticket data on the horizon, odds favored a sideways consolidation ahead of this Wednesday’s Fed events. That remains mostly true, but only after markets recovered from a threatening morning sell-off. 10yr yields technically hit new multi-decade highs, but only by 1/100th of a percent. Bonds seem to be calming down since then. Most of the movement was attributable to positioning as opposed to organic reactions to data/events.

We’ve seen plenty of discussion and questions about the role of oil prices in the current bond drama.  The simplest way to to think about oil is that it is, of course, an input for inflation, and thus of some consequence to bonds.  Additionally, in a vacuum, it’s also an economic metric (higher = stronger economy, all other things being equal).  That said, it can also suffer from temporary headline-driven distortions as well as longer-lasting trends in currency valuations (i.e. the Euro currency deflation in 2014 led to a huge drop in oil prices as U.S. currency strengthened).  Either way, traders can’t help but consider the general suggestion in the chart since mid August.  Maybe the Fed will talk about it tomorrow…
Source: Mortgage News Daily