Since 2019, distressed loans have increased 77%, but it is just a small portion of the $691 billion currently outstanding.

The agreement between The Work Number business unit and Iris Software Group could ease employment and income verification for up to 1 million consumers, the credit-reporting agency said.

The proposal by a regulator overseeing government-related loan buyers could cut companies with small infractions off from a key source of business, groups say.

The morning after, the benchmark 10-year Treasury yield touched a 52-week high, but Freddie Mac reported a 1 basis point jump.

The Federal Reserve’s rate hikes so far are just “catching up,” the JPMorgan chairman and CEO says. Dimon predicts inflation will be at 4% early next year and “won’t be coming down for a whole bunch of reasons.”

New Yield Highs After Post-Fed Follow-Through and Econ Data

Any time the market goes to sleep on a Fed day in the midst of a big move, there’s a stronger than average possibility that overseas markets will add some momentum in the prevailing direction.  That direction is “UP!” as far as rates and yields are concerned.  The overseas FOMO selling brought yields to new long term highs overnight and a big beat in Jobless Claims made for another few bps of selling.  After that, bonds managed to level off fairly well, but they may have benefited from the acceleration in stock selling.

Econ Data / Events

Jobless Claims

201k vs 225k f’cast, 221k prev

Philly Fed

-13.5 vs -0.7 f’cast, 12 prev

Philly Fed Prices

25.7 vs 20.8 prev

Market Movement Recap

08:34 AM Much weaker overnight with additional selling after data.  10s up 8bps at 4.478.  MBS down almost half a point. 

12:52 PM Calm trading since 9am with MBS down 7 ticks (.22) and 10yr up 7bps at 4.47%.

03:29 PM Some illiquidity weighing on MBS but still generally flat.  6.0 coupons down roughly a quarter point.  10s up 7.9bps at 4.478

Rates moved only moderately higher on Wednesday after the Fed rocked the bond market with its updated rate forecasts.  To reiterate yesterday’s analysis, it’s not that the market is expecting the Fed to be accurate in those forecasts.  Rather, the forecasts help investors understand how the Fed’s approach will be calibrated going forward. In simpler terms, the Fed doesn’t think rates are too high right now.  If anything, they might need to go higher.  Moreover, they won’t go lower until economic data really starts to deteriorate in a compelling way.  Unfortunately, this morning’s most relevant economic report didn’t deteriorate at all (weekly jobless claims were 201k versus a median forecast of 225k).  Actually, it’s fortunate for the economy, but unfortunate for interest rates.   Between the data and the overnight momentum in overseas markets, bonds are at their weakest levels in years.  Mortgage-backed securities (the bonds that dictate mortgage rates) didn’t swoon quite as much as Treasuries, but as of today, it was just enough to push the average mortgage lender almost perfectly back in line with the highest 30yr fixed rate of the past 23 years. 

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.

Wednesday was a confirmation of a hawkish Fed that won’t care about the economy until it sees actual damage, and even then, only if that damage coincides with the expected drop in inflation.  More important than Powell’s message during the press conference was the takeaway from the Fed’s dot plot.  The market was positioned for this, but subsequent trading suggests “not positioned enough.”  Domestic traders began shifting their selling focus away from the shortest end of the yield curve this morning.  This is their way of acquiescing to the idea that the Fed will attempt to keep rates high for as long as possible (or as long as it takes for inflation to come back to target levels). 
Now for the plot twist: virtually all of the first paragraph was copied and pasted from last September’s post-Fed Thursday (here’s the link to the original).  Pretty spooky…
In the present day example, we have the same sort of international follow-through in the overnight session following a “higher for longer” nudge from the Fed, but we also have stronger jobless claims data and a higher inflation reading inside the Philly Fed data (of the two, the labor market data is the bigger mover). 
Comparing the present example to the big picture, we find similarities and differences.  In both cases, the Fed day reaction represented a technical breakout of a recently achieved high yield:

But the 2022 bond market was in a much greater state of flux.  The yield curve had only recently inverted and 2s had been selling off faster and faster compared to 10s.  Contrast that to 2023 where 2s have been far more sideways compared to 10s.  While it can take months, the stabilization of a curve inversion trend is another step toward an eventual rate reversal.  

The scary caveat is that some past examples show multiple head fakes back toward an un-inverted curve before it finally takes.  The following chart shows those head fakes (note, this is 10s vs 1s as opposed to 10s vs 2s, due to better historical data availability in 1yr Treasuries). 

Fewer of these mortgages are paying off, adding to the amount of credit on investors’ books, the Mortgage Bankers Association said.