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

The dispute coincides with Trump’s effort to push out Fed Governor Lisa Cook for alleged mortgage fraud, which the president maintains creates sufficient cause.

Getting a dwindling number of mortgages distressed for over a year off the books could improve the enterprises’ financial position.

California-based Linkhome Holdings’ new platform allows buyers to use cryptocurrency for property purchases.

Uneventful Rally. Retail Sales on Deck

Bonds began the week on a stronger note, but not for any glaringly obvious reasons. The same was said about Friday’s weakness, so perhaps we’ll just call it a wash and assume that traders are getting into (or out of) position(s) ahead of this week’s Fed Day. Thus morning’s NY Fed Manufacturing data fit the rally narrative, but most of the gains were in place beforehand–not to mention the limited track record of impact from that report. Volumes were exceptionally light and volatility was exceptionally low after the initial gains in the AM. Tuesday’s Retail Sales data is more capable of moving the needle.

Econ Data / Events

NY Fed Manufacturing

-8.7 vs +5.0 f’cast, 11.9 prev

Market Movement Recap

10:50 AM Flat overnight with early, modest gains. MBS up 3 ticks (.09) and 10yr down 2.3bps at 4.043

02:29 PM Steady gains.  MBS up 6 ticks (.19) and 10yr down 3.4bps at 4.033

03:46 PM Boring and green.  MBS still up 6 ticks (.19) and 10yr down 2.6bps at 4.04

Mortgage rates have done almost nothing but move lower over the past 4 months. The first Fridays in August and September account for about half of the total drop thanks to weaker results in the jobs report. Since the September 5th jobs report, rates have held a sideways-to-slightly lower range that’s resulted in several additional “lowest since” headlines. There’s nothing special about today in that regard. Bonds (which dictate rates) happened to improve, so rates inched to another 11+ month low. Today’s levels aren’t appreciably different than last Friday’s.  Volatility is a bigger risk over the next two days thanks to economic data tomorrow morning and the Fed announcement on Wednesday. 

“Someone posted that they had just made synonym buns. I replied, ‘You mean just like the ones that grammar used to make?’ I am now blocked.” That was sent to me by an economist; yes, they have senses of humor. Did you know that the Federal Reserve Board employs more than 500 researchers, including more than 400 Ph.D. economists, who represent an exceptionally diverse range of interests and specific areas of expertise? (I wonder if anyone yells, “Is there a doctor in the house?” at staff meetings.) This week’s focus will be almost entirely on the Federal Reserve. The central bank’s monetary policy committee will deliver its seventh interest rate decision of the year on Wednesday. The Fed has stubbornly held interest rates steady since ending 2024 with a series of cuts, but now with the labor market showing continued signs of cooling and inflation remaining sticky, it is a sure thing that the central bank will restart its policy easing process and drop overnight Fed Funds by 25 basis points, which in turn should move the discount rate lower (the rate at which the Federal Reserve lends money to financial institutions, including commercial banks, thrifts and credit unions). (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 Potomac Consulting’s Dan Varroney on why the Federal Reserve should cut rates 50-basis points this week due to weakening labor markets and recent inflation data.)

For all the time we spend pushing back on the notion that the Fed Funds Rate is a root cause for volatility in longer-term rates, that push-back always carries a notable caveat: Fed Funds Rate expectations definitely have a direct correlation with longer-term rates.
There are two reasons those expectations can change: markets are either assuming the change due to economic data or markets are reacting to a change in the Fed’s reaction function. Fed speeches and especially the quarterly dot plot (a summary of each Fed member’s base case rate expectations) account for changes in the reaction function.
This is why the dot plot can be such a big market mover.  It also causes volatility because the market spends 3 months trying to get inside the Fed’s head and the dots let the market know how good of a job they did. 
Bottom line: with a fairly big shift in labor market metrics over the past 3 months, Wednesday afternoon’s dot plot is this week’s focal point for potential volatility. 
Bonds are starting the week slightly stronger after holding fairly steady in the overnight session.

Federal Reserve Governor Lisa Cook described an Atlanta property at the center of a lawsuit over her attempted ouster as a “vacation home,” according to documents viewed by Bloomberg News.

The federal regulator terminated the wholesale lender’s FHA approvals in six jurisdictions because of certain elevated default and claim rate data.