Consumers are 19% more likely to pay their auto loans than their mortgages, which is a shift in attitude from the pandemic period, FICO said.

If the Fed reinvested the roughly $18 billion in monthly “roll-off” into new MBS, it could compress mortgage spreads, the investment management firm said.

A federal judge in Colorado ruled that the appraisal discrimination case raised by the government against both Rocket and Solidifi will move forward.

Housing finance firms have anticipated a 25 basis point move, so what could move the needle is less that outcome than actions that go beyond or differ from it.

The transaction combines independent mortgage companies which are based in Strongsville, Ohio (East Coast) and Folsom, California (West Coast).

Big Shift Toward 5.0 Coupons Continues

Mortgage rates have lurched rapidly lower in September as 5.0 UMBS have stolen the show from 5.5 UMBS. As a reminder, there is only a certain range of rates allowed in either bucket. 5.5s go all the way up to 6.625% and investors buying MBS would prefer not to get stuck holding a burning bag of 6.625% loans in a market where those borrowers are already on the edge of being in the money on a refi. Bottom line, it’s the fastest/biggest shift in 5.0 outperformance since late 2023, and today’s installment brought the spread between the two coupons to the tightest levels since early October 2024.  Lo and behold, that’s the last time rates were in this territory. Spreads spiked back to wider levels on October 4th owing to a strong jobs report. This October’s jobs report will be in focus for similar reasons, but before that, near-term volatility risks surround Wednesday’s Fed dot plot.

Econ Data / Events

Export prices mm (Aug)

0.3% vs 0% f’cast, 0.1% prev

Import prices mm (Aug)

0.3% vs -0.1% f’cast, 0.4% prev

Retail Sales (Aug)

0.6% vs 0.2% f’cast, 0.5% prev

Retail Sales (ex-autos) (Aug)

0.7% vs 0.4% f’cast, 0.3% prev

Retail Sales Control Group MoM (Aug)

0.7% vs 0.4% f’cast, 0.5% prev

Market Movement Recap

09:04 AM Initial weakness after Retail Sales, but avoiding sharp selling.  MBS unchanged and 10yr only up 1bp at 4.049

10:02 AM Very decent recovery. MBS up 1 tick (.03) and 10yr down almost 1bp at 4.033

11:56 AM MBS unchanged to 1 tick (.03) weaker.  10yr down 0.9bps at 4.032

03:14 PM Holding modest gains.  MBS up 2 ticks (.06) and 10yr down 1.3bps at 4.027

My cat Myrtle was always up for a battle with a lizard in the yard. On a larger scale, the ancient Chinese philosopher Sun Tzu said, “Every battle is won or lost before the battle takes place.” Fed Governor Lisa Cook won the last legal round yesterday in her battle to stay with the Fed. Do you think that companies building a factory in the U.S., as we move toward a factory-based economy with a plant taking 5-10 years to build, will face a battle with local authorities on zoning? Does your company foresee any fair lending battles coming up with regulators? Jeff Naimon from Orrick highlights today’s Mortgage Law Today at 3PM ET. (Jeff is a fixture at the legal issues conferences and helped write the MBA amicus brief on the CFPB funding case.) Many groups took credit for the battle surrounding abusive trigger leads. President Trump recently signed it, and now, “Effective March 5, 2026 (six months out), trigger leads will be permissible under the Fair Credit Reporting Act only in limited circumstances during a real estate transaction and only to provide a firm offer of credit.” Today’s podcast can be found here and this week’s are sponsored by CreditXpert. The all-new credit optimization platform that helps you close more loans. CreditXpert is committed to making homeownership more accessible and affordable for ALL. Today’s features an interview with Figure’s Mike Cagney on the company’s successful IPO last week and how decentralized finance is going to change the mortgage industry for the better, and soon.)

Mortgage rates dropped sharply lower today relative to the amount of movement in the underlying bond market with the average lender right in line with the lowest levels since late 2022. Because rates are directly tied to the prices of those bonds, the correlation tends to be almost perfect over time. [thirtyyearmortgagerates] But there are always scattered examples of one leap-frogging the other. These inconsistencies can arise for several reasons. In today’s case, it happened due to late-day strength in bonds yesterday afternoon coupled with the structure of the underlying mortgage bond market. An explanation of the latter would be woefully esoteric in the context of a daily mortgage rate update–even for industry professionals. In the simplest possible terms, it has to do with the range of interest rates allowed in each grouping of mortgage backed securities (MBS). As investor sentiment shifts in favor of the next lower grouping, it effectively greases the skids for rates to slide down into the range associated with that grouping. The overall set-up is reminiscent of September 2024 when rates were doing the same thing for the same reasons ahead of Fed meeting with a virtual 100% chance of a rate cut. Back then, mortgage rates moved paradoxically higher after the Fed rate cut.  The same thing could happen this time, but it’s by no means guaranteed. In fact, last year’s Fed rate cut wasn’t the catalyst for rising mortgage rates. Instead, it was an upbeat shift in economic data in early October. In other words, rates will take their next major cues from incoming economic data over the next few weeks. 

After last week’s CPI data was taken mostly in stride, the only other potential economic data hurdle was this morning’s Retail Sales report. Whereas CPI was merely on the hotter side of the consensus, Retail Sales came out unequivocally stronger, with the control group hitting the 6.0% mark in year-over-year terms.  Even after subtracting 3% annual inflation, this is a strong economic signal and it was no surprise to see bonds lose ground immediately following the release. It’s been more of a surprise to see a reversal of those losses and a return to modestly positive territory less than an hour after the data.  There’s actually no obvious reason for it without relying on conjecture.
What we  can see is that the Treasury recovery picked up steam at the 9:30am NYSE open as yields fell in concert with stock prices. Could be as simple as some profit taking and asset allocation trading.

While equity still sits near historic highs, price growth moderation led to shrinkage of the total amount available and a rise in underwater mortgages.