The Consumer Financial Protection Bureau has withdrawn guidance that allowed states to bring enforcement actions broadly under federal consumer protection laws.

(Un)Surprising Reversal After Initial Weakness

The sharp overnight losses in stocks and bonds were consistent with a market that didn’t have time to process the sort of knee-jerk reaction one would expect from headlines like Moody’s US credit rating downgrade. Most of the rest of the domestic session was consistent with the type of reversal one might expect after a knee-jerk reaction to news that wasn’t really that newsworthy. As has been exhaustively covered, 2 of the other big 3 ratings agencies had long since taken the US credit rating down a peg, thus limiting the true significance of Friday’s news. Bonds ended the day weaker than they were at 3pm last Friday (before the Moody’s news), but slightly stronger vs the 5pm levels (15 minutes after the Moody’s news).

Market Movement Recap

08:36 AM Sharply weaker overnight as Moody’s reaction extends overseas.  MBS down 3/8ths and 10yr up 7.3bps at 4.552

10:48 AM Making progress after sellers got their fill.  MBS down only an eighth and 10yr up only 2bps at 4.5

02:01 PM Now moving into positive territory with MBS up 1 tick (.03) and 10yr roughly unchanged at 4.481

Mortgage rates jumped sharply over the weekend as financial markets reacted to Moody’s credit rating downgrade of the U.S.  News of the downgrade broke with only minutes left in Friday’s market/business day, so most of the response played out when global markets opened again late last night. The initial reaction involved stock prices moving lower and bond yields moving higher (which can also be characterized as bond market weakness/losses/etc). In general, bond market weakness coincides with higher mortgage rates and this morning was no exception.  Most mortgage lenders are deciding on rates for the day in the 9am-10am ET time frame.  Because this was one of the weakest moments for the bond market, mortgage rates were sharply higher at first. The average lender was back over 7% for the 1st time since April 11th, and only the 2nd time in 3 months. No sooner were these rates being published than the underlying market began moving back in the other direction. Mortgage lenders prefer to only set rates once per day, but will make mid-day updates when things change enough. Today’s reversal was more than sufficient to prompt a re-price. After that, the average top tier 30yr fixed rate moved just barely back below 7.0%–still higher than Friday, but much more in line with last week’s range.

People who don’t attend the National Secondary here in Manhattan wonder what happens behind the scenes. Here you go. We had the MCT elevator failure last night, inconveniencing a carload of mortgage folks between floors. There is definitely an older crowd at the conference. I was walking by one fellow who had asked a non-QM rep for her number, and she replied “140 over 95.” Fewer wing tips and high heels, and more tennis shoes and talk of Fab Feet products. What are capital markets personnel talking about in the hallways? One issue is the rating agency Moody’s cutting the credit quality of the United States given our debt situation: it certainly won’t help lending rates. (Our nation isn’t approaching B or C or subprime status, but the current budget proposal adding trillions of dollars of debt won’t help.) Fox News reports that President Trump warned Walmart to eat the cost of the tariffs instead of raising prices, despite thin retail margins. The MBA’s expectation is that the U.S. economy will slow down due to the tariffs, and that their impact on the new home market, appliance cost, HVAC cost, will hurt housing affordability, not help it. (Today’s podcast can be found here and this week’s is sponsored by Xactus and its commitment to the continued transformation of the mortgage verification industry. Pioneering a new class of technology, “Intelligent Verification,” Xactus is redefining how the industry originates and services mortgages. Today’s has an interview with Xactus’ Greg Holmes on how the company’s consultative approach, intelligent verification, and strategic partnerships are helping lenders.)

When Moody’s announced the surprise cut of the US credit rating on Friday, there were only a few minutes left to trade and all but the latest working US-based traders were even at their desks. The most logical fallout in a scenario like that is for the rest of the world to take its turn piling into the trade as soon as overseas markets opened (not to mention US traders who were already gone for the day on Friday).  Unfortunately, logic prevailed overnight. We’d note that Moody’s was simply the last of the big 3 to make this change, and that it’s not really a groundbreaking development.  Rather, the groundbreaking development is playing out behind the scenes as the US government (all of it, red and blue and in between) once again fails to set the country on a sustainable fiscal path.  THAT is what the market is protesting. That is why the crowd is booing. Moody’s is simply the surly guy who shouted “you suck!” from the back of the audience.

Investors face yet another bumpy start to the trading week, although it’s mounting concern over US debt rather than tariffs likely generating the volatility this time.

US states from Florida to North Carolina and Texas would likely hold onto top-notch credit scores from Moody’s Ratings, mostly because they’re in better fiscal shape than the federal government itself.

Firing 90% of the Consumer Financial Protection Bureau’s staff and stripping it down to “the statutory studs” is lawful, an attorney for the CFPB told an appeals court.

The rule rescission, one of many the Consumer Financial Protection Bureau is planning, would officially remove temporary steps for mortgages added in 2021.

Rocktop Management anticipates rising loan origination volume and increasing borrower distress, driving more servicing sales — key reasons behind its acquisition of Incenter Capital Advisors.