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Weakest Levels of The Week Ahead of Jobs Report (Updated Video.... for real this time)

  • Weakest Levels of The Week Ahead of Jobs Report Bonds sold off mid-morning after starting off relatively flat.  The economic data argued against bond selling, so it fell to a B-list of unlikely suspects to explain the move.  While it ultimately could be as simple as "no buyers ahead of Friday's jobs report," we can also consider some hawkish Fed comments, corporate bond issuance, and a few big block trades as motivating factors.  In the bigger picture, it just looks like bonds have confirmed the boundaries of their range-finding expedition following last week's UK debt drama.  It now falls to econ data to raise any potential challenges to this range.  Friday's jobs report will be a good start, but next week's CPI is even more potent. Econ Data / Events ISM Services PMI 56.7 vs 56.0 f'cast Biz activity  59.1 vs 60.9 prev Employment Index 53.0 vs 50.2 prev  highest since March ADP Employment +208k vs. +200k f'cast Market Movement Recap 09:17 AM slightly weaker overnight with some recovery after challenger job cut report.  10yr up 1.4bps and MBS down an eighth, both well within yesterday's trading ranges. 11:06 AM Weakness after 9:45am for a variety of relatively unsatisfying reasons (corp issuance, Fed comments, block trades, underwhelming BOE bond buying operation, technical breakout in US and EU yields).  10yr up 6.3 bps and MBS down 3/8ths.  01:51 PM Bit of a recovery after 11am, but stalling in the PM hours.  MBS still down 3/8ths and 10yr yields up 4.5bs at 3.799% 03:15 PM Back at the lows of the day in MBS, down 18 ticks (.56) in 5.0 coupons.  10yr yields are up 6.5bps on the day at 3.82%.  No new news of note.

    Thu, 06 Oct 2022 20:25:26 GMT

No, Mortgage Rates Aren't Lower This Week. They're Actually Back Over 7%

  • Mortgage rates were refreshingly lower at the beginning of the week with most lenders continuing to improve through Tuesday afternoon.  Much has changed since then.  In fact, the average lender is once again above 7% for top tier conventional 30yr fixed rates.   Contrast that to today's prevailing mortgage rate headline which says something to the effect of "rates fell to 6.66% this week," and you may wonder who's telling the truth. The good news is that no one is lying and, by the time we understand the source of confusion, no one is even trying to mislead you.  As is the case on any Thursday, many of today's mainstream mortgage rate headlines are based on Freddie Mac's weekly rate index.  Many times, that's not a problem.  Other times, the survey's methodology (which Freddie is working on changing) leads to misdirection. Specifically, the survey responses tend to come in on Monday and, to a lesser extent, Tuesday.  Results aren't reported until Thursday.  As such, any major shift in rates that occurs on Wed/Thu fails to be captured in the data.  Consider those timing considerations in conjunction with this week's rate volatility (where rates bottomed out on Monday/Tuesday before reversing much higher on Wed/Thu) as well as the fact that the survey rate depends on discount points that often don't make it into the headlines, and it's easy to see why the numbers can be so different.   Long story short, if Freddie's survey was daily instead of weekly, and if it adjusted the rate to factor out upfront points, it too would be over 7% today. [thirtyyearmortgagerates]

    Thu, 06 Oct 2022 19:15:04 GMT

Place-Holder Day Ahead of Jobs Report

  • Without commenting on the odds of any particular outcome, Thursday can't help but fill the role of "placeholder" given the proximity of tomorrow's big jobs report. That's not to say bonds can't make a move today.  Indeed, they may already be giving that a shot in early trading.  Rather, the point is data like the jobs report is what's required to shape bigger picture trends.  If forced to comment on risks and opportunities between now and then, and at risk of stating the obvious, Tuesday's low yields increasingly look like the bottom of the bond market's short-term range finding expedition. This, then, could be considered to be the new data-dependent range:

    Thu, 06 Oct 2022 16:15:21 GMT

Rate Lock Index, Warehouse Optimization, Audit, Sales Tools; Company Sponsored Training

  • One can always focus on lending activity hitting a 25-year low, or the once mighty loanDepot reducing its own liquidity or handing raises out to executives, or’s CEO back in the headlines. So let’s veer off the mortgage track for a bit. Not everyone in residential lending is a baseball fan, but everyone in our biz knows a thing or two about money. Aaron Judge of the New York Yankees hit his 62nd home run of the season, a new record. The ball was caught by a fan, and the question has been raised that has not been answered: “What happens when you take possession of a baseball that is worth $1 million to $2 million? The closest that the IRS has come to answering this is a memo sent in the late 1990s titled the “treasure trove regulation.” When one finds a buried treasure, or in this case catches a million-dollar baseball, it would technically lead to a $332,955 tax bill. If the fan gave the ball back to the player, it could technically trigger a gift tax. Alternatively, the IRS would not actually want to collect any tax on the ball until it’s sold, when it’d be taxed as a capital gain, or as a collectible, which has a 28 percent long-term rate. Some suggest the IRS should tax the fan on the $25 retail price of the baseball, and then treat the million-dollar price as an unrealized gain not to be taxed until it’s sold. (Today’s podcast is available here and this week’s is sponsored by Candor Technology, Home of the One Touch Underwrite, supporting lenders from Point of Sale to Post Close QC, to reduce repurchase risk, increase underwriter productivity by 400% and decrease turn-times by 10 days.)

    Thu, 06 Oct 2022 14:00:14 GMT

Mortgage Rates Jump Back Up Toward 7%

  • The mortgage rate world has been on a wild ride in general, and even more so in the past few weeks.  The crux of the drama was a British fiscal policy announcement that sent financial markets into a tailspin just after the September 21st Fed Announcement.  The initial reaction was a sharp increase in rates that peaked the following Tuesday.  Since then, rates have been recovering fairly nicely, but it was probably not destined to last.  Or at the very least, the forces responsible for the recent drop in rates likely had a limited well of potential and today we found the bottom. All that to say that the friendly correction to last week's extremely unfriendly rate spike has now probably run its course.  We knew we would be shifting into a data dependent stance where key economic reports would shape the ebbs and flows in the short term.  One of the more important reports in that process came out today, suggesting the economy can continue to endure the rising rate regime that the Fed is employing in order to stem the tide of inflation.  In other words, the economy isn't damaged enough for there to be significant downward pressure on rates.  When markets realized the nightmare (relative terms) wasn't yet over, lenders quickly bumped loan pricing back up into the 7% territory.  Pinning down a specific rate remains difficult due to a wide stratification among lenders and quoting practices.  Many lenders are over 7%.  Many are under.  It's best to focus on the day over day change.  Today's change was "sharply higher" to the tune of 0.25% - 0.375% in rate.  

    Wed, 05 Oct 2022 20:19:48 GMT

Confirmation of What We Probably Already Knew

  • Confirmation of What We Probably Already Knew Bonds began the day in weaker territory after a slew of "not-too-terrible" economic data in Europe.  Additionally, from a technical perspective, bonds probably were getting back into territory consistent with de-escalating from the recent British drama.  As we continued to advise, this was never likely to be a sustainable source of positive momentum as much as a mere "re-set" of the a new higher range.  In 3.56%, 10yr yields are saying they may have found a short-term floor until data becomes weak enough to coax them lower.  Today's ISM services data did NOT fit that bill, thus ushering in the day's weakest levels just after 10am.  Bonds clawed back a bit of territory after that early selling, but MBS remained roughly half a point lower by the 3pm CME close.  Attention now turns to Friday's NFP with tomorrow acting as more of a placeholder. Econ Data / Events ISM Services PMI 56.7 vs 56.0 f'cast Biz activity  59.1 vs 60.9 prev Employment Index 53.0 vs 50.2 prev  highest since March ADP Employment +208k vs. +200k f'cast Market Movement Recap 09:01 AM Weaker overnight and little-changed so far in domestic trading.  MBS down just under half a point and 10yr yields up 6.6bps at 3.701 09:47 AM A bit more weakness ahead of the ISM release.  MBS down almost 5/8ths and 10yr up more than 9bps at 3.729.  corporate issuance and EU sell-off adding to the pressure 10:05 AM Additional weakness after slightly stronger ISM services data.  MBS down more than 3/4ths and 10yr yields up 14.4 bps at 3.779 11:27 AM Generally calmer now as MBS bounce along the lows of the day, currently down 3/4ths of a point.  10yr still up 13.4bps at 3.771 01:34 PM Still flat with no major changes since the last update.  MBS down about 3/4ths and 10yr up 13.4bps. 04:06 PM Decent little recovery heading into the close with MBS now down "only" half a point (they were down more than 3/4ths of a point at times today.  10yr yields are off the highs of 3.789, now down to 3.747.  

    Wed, 05 Oct 2022 20:08:16 GMT

Bonds On The Back Foot Ahead of ISM Data

  • As feared, the recent rally in the bond market is quickly proving that it was fueled by a correction from panicked levels surrounding the UK drama in the last week of September rather than some new inspiration to begin a sustainable move lower in rate.  Yesterday's job openings data helped extend modest gains that may have otherwise ended up being modest losses.  We're left in the same position regardless, with the big ticket economic reports likely to set the tone and define the boundaries of the early October range-finding expedition.  Today's ISM data is the second of this week's three biggest tickets with the final big ticket being issued on Friday morning in the form of the big jobs report.  In other news, oil prices have been a hot topic recently due to the expectation and now confirmation of OPEC production cuts (an effort to stem the tide of recent price declines).  It's natural and logical to expect correlation between oil prices and bonds, given their common cousin, inflation.  But in practice, we definitely see pockets of divergent activity.   In the shorter term, we're more inclined to see the recent rally in bonds less as a sign of economic fear and more of a technical move back down from the defensive, panicked trading surrounding the UK drama of late September.  That's not to say that correlation with oil couldn't resume for economic reasons, but as always, we're not counting on that being a key guidance giver for bonds (more like "something that often tends to coincide and occasionally doesn't coincide at all). 

    Wed, 05 Oct 2022 13:58:52 GMT

Customer Retention, DPA, Paperless Products; Investor Disaster News; STRATMOR HELOC Survey

  • Yogi Berra, when asked about staying in a particular hotel, replied, “The towels were so thick there I could hardly close my suitcase.” I’ve attended my share of conferences in the last few months (no towels were purloined), and the two big general concerns for lenders everywhere are a) providing the best products, price, and service to clients, and b) the general economic and interest rate climate and its impact on their business model. Regarding the second topic, mergers and acquisitions are on fire, and a good starting point in evaluating deals and how to structure them is the current STRATMOR blog, “Mergers and Acquisitions Continue On.” In product news, the use of Home Equity Lines of Credit (HELOC) and closed end Home Equity Loans (HELOAN) has skyrocketed recently as consumers need liquidity but want to keep their low rate first mortgage in place. STRATMOR Group is conducting a very brief survey to better understand the key decisions driving lenders to offer these products. The survey takes only a few minutes and does not require any data collection. Participants will receive a summary of the survey findings. Lenders, click here to participate. (Today’s podcast is available here and features an interview with Sara Knochel and Shane Osborne on why everyone is using technology to refocus on quality control. This week’s podcast is Sponsored by Candor Technology, Home of the One Touch Underwrite, supporting lenders from Point of Sale to Post Close QC, to reduce repurchase risk, increase underwriter productivity by 400% and decrease turn-times by 10 days.)

    Wed, 05 Oct 2022 13:21:14 GMT

Application Volume Plunges to 25 Year Low

  • There were two storms brewing last week and each contributed to driving mortgage applications to generational lows. The Mortgage Bankers Association (MBA) said the continuing rise in interest rates and the devastating hurricane that hit Florida and the Carolina’s contributed to a double-digit decline in its indices that measure mortgage application volume. The Market Composite Index for the week ended September 30 was down 14.2 percent on a seasonally adjusted basis from one week earlier and 14 percent before adjustment. The Refinance Index fell 18 percent from the previous week and was 86 percent lower than the same week one year ago. The refinance share of mortgage activity dipped to 29.0 percent from 30.2 percent the previous week. The Purchase Index dropped by 13 percent week-over-week on both an adjusted and an unadjusted basis. It was down 37 percent from the same week in 2021. MBA’s Associate Vice President of Economic and Industry Forecasting, Joel Kan said, “Mortgage rates continued to climb last week, causing another pullback in overall application activity, which dropped to its slowest pace since 1997. The 30-year fixed rate hit 6.75 percent last week – the highest rate since 2006. The current rate has more than doubled over the past year and has increased 130 basis points in the past seven weeks alone. The steep increase in rates continued to halt refinance activity and is also impacting purchase applications, which have fallen 37 percent behind last year’s pace. Additionally, the spreads between the conforming rate compared to jumbo loans widened again, and we saw the ARM share rise further to almost 12 percent of applications.”

    Wed, 05 Oct 2022 11:44:27 GMT

Mortgage Rates Lowest in More Than a Week

  • We're measuring our mortgage rate spikes in terms of years and decades at the moment.  Progress in the other direction has been elusive--especially since the beginning of August.  Since then, mortgage rates haven't been able to string together any sort of winning streak lasting more than a few days.  On a slightly broader note, we haven't been able to say "lowest rates in 2 weeks" in almost 2 months now.  If the present stability continues, we'll be very close to breaking that curse over the next few days.  Today's rates weren't markedly different from yesterday's, but both days are much better than last week--especially the 20-year highs seen on Tuesday.  During that time, the average lender moved back down from the low 7s to the mid-to-high 6s when it comes to conventional 30yr fixed rates. Big disclaimers remain necessary when discussing mortgage rates these days.  Not only is pricing more stratified than normal between lenders and loan products, but so is pricing and quoting strategy.  In most cases, any given mortgage rate quote is simply one option--one combination of upfront costs and an official interest rate (aka the "note rate," so named because it's the interest rate on the mortgage note).  For most of the past decade, lenders generally quoted rates with lower upfront costs.  At present, some lenders can't do that due to their funding channels.  Others choose not to for a variety of reasons.  The point here is that any interest rate in a news headline or even in a graph/table/etc must be qualified based on the upfront point implications.  The even better point is that any given rate tracking resource is best used to gauge MOVEMENT as opposed to outright levels.  Notice the differences in MND's daily rate and the weekly rates from MBA/Freddie Mac:

    Tue, 04 Oct 2022 20:53:08 GMT