How ‘bout some good news? Last week’s apps skyrocketed, and… Builders are sitting on a pile of unsold homes and are slashing prices and offering mortgage rate deals! It sure is hard to have a “steady as she goes” environment in real estate and lending. Word continues to simmer about IMBs (independent mortgage banks) and the Community Reinvestment Act. Even though the CRA is a Congressionally approved law at the federal level, states like Illinois and New York have put rules in place, despite IMBs not accepting deposits. Some states can be more restrictive than the Federal government, but they don’t want to do anything that is unconstitutional. In addition, regulators, it can be argued, use archaic measures to analyze business practices. What difference does it make where the branch is, given that so many LOs work from home? Questions have come up about the CFPB and Justice Department enforcing Fair Lending. How will Fair Lending be enforced, if at all? Ask any LO: Lenders are taking every loan they can get, so claims of redlining are highly suspect. Every lender out there is trying in every way to qualify any borrower. Certainly, inventory shortages in some areas shouldn’t be held against lenders. (Today’s podcast can be found here and this week’s is sponsored by Figure. Figure is shaking up the lending world with its five-day HELOC, offering borrower approvals in as little as five minutes and funding in five days. Lenders, give your borrowers an experience they will rave about. On today’s hear a discussion between Robbie and Rob Chrisman making sense of all the volatility we have seen as a result of President Trump’s tariffs.)

MBS are down the better part of a point and 10yr yields are up 14+ bps at 4.44%.  Another huge loss that leaves market watchers grasping for answers.

Most of you are aware that MBS Live publishes a daily recap video.  MBS Live is aware that many of you prefer not to sit through more than 60 seconds of video content at a time.  While the text of the recap typically tells you enough to get by, there are times when things won’t make any sense without the fireside chat.  In this case, they still might not make sense, but it’s your best shot.  Here’s the link.
For those who really can’t be bothered (and as a guy who watches most videos on 2x speed, I feel you), here are some bullet points:

Tariff revenue will actually be lower than it was before due to a rapid slowdown in trade and what increasingly looks like a surefire path to recession
Lower revenue and recessions both imply higher Treasury issuance and thus, higher yields
A rapid slowdown in trade lowers the demand for US Treasuries among foreign central banks
Tariff brinksmanship raises the risk of higher inflation readings in the short term
Stocks and bonds are no longer locked in such a tight correlation pattern
The short end of the yield curve is benefiting to some extent from Fed rate cut expectations, thus putting even more bond selling pressure on the long end of the curve

Vacating the judgment would set a dangerous precedent for new administrations to roll back unfavorable rulings, the National Fair Housing Alliance argued.

MBA’s CEO Bob Broeksmit said the trade group is actively getting in front of Trump-appointed officials to help guide housing policy.

Wholesale firm Ardri’s acquisition of The Lending Shop comes after the company installed a mortgage industry veteran as its new president earlier this year.

Deregulation at the federal and state levels could open the door to a potential boom in housing supply, HUD Secretary Scott Turner said Tuesday.

Senate Banking Committee Chairman Tim Scott said Jonathan McKernan’s final confirmation vote to lead the Consumer Financial Protection Bureau is “imminent.”

Heavy Losses as Bonds Brace For Tougher Times

This morning’s commentary suggested that “liberation day volatility has come and gone.” That’s true, but now we’ve moved on to the volatility associated with actual tariff implementations.  While there was some hope and even expectation regarding “deals” being worked out, there’s been notable escalation with China over the past 24 hours and it’s causing issues for bonds for a variety of reasons (detailed in today’s video). Inflation is a concern, but not the biggest. On an esoteric note, foreign Treasury demand correlates with import volume, so if tariffs lead to sharply reduced imports from the likes of China, it has implications for Treasury demand in the future. Compounding the problem is that a system that relies more on tariffs for revenue will then have to issue more Treasuries to address shortfalls.  Bottom line: unfriendly double whammy for rates, regardless of inflation.  

Market Movement Recap

09:35 AM Weaker overnight and losing more ground in early trading.  MBS down an eighth and 10yr up 6.7bps at 4.24

01:54 PM Decent recovery into mid-day, but getting shaky again now.  MBS down 2 ticks (.06) and 10yr up 6.3bps at 4.237

04:27 PM Weakest levels of the day with MBS down 3/8ths and 10yr up 11.5bps at 4.288

While no one can be sure exactly how things will pan out in the long run, the market is currently expressing extreme disapproval of the new tariff plans.  While interest rates had previously benefited from some of the chaos in the stock market, that ship has sailed. Now, both sides of the market are losing ground (stocks lower, rates higher). Today’s rate increase wasn’t nearly as big as yesterday’s, but it’s no less notable because it officially takes the average 30yr fixed rate to the highest level since late February.  This is the biggest 2 day rate increase so far this year, but if you didn’t know about the past 4 days, current levels wouldn’t look too troubling. [thirtyyearmortgagerates] As for motivations, that’s a fairly esoteric discussion compared to last week’s simple conclusions about investors selling stocks and seeking safety in the bond market (something that pushes rates lower). After all, the opposite correlation is now in effect.  Esoteric stuff follows: Part of the issue is the varying levels of performance between longer and shorter term rates. For example, 10yr Treasury yields are up substantially, but 2 year Treasury yields are actually down a bit.  We can also consider that this week plays host to several big Treasury auctions and investors are hesitant to keep bonds at higher prices (same thing as lower yields/rates) until we get past the auctions. There’s also the matter of future Treasury issuance implications and future demand changes surrounding tariffs.  Specifically, if trade decreases and if we’re relying on tariffs for revenue, we would need to issue more Treasuries to make up for the revenue shortfall.  Treasury issuance puts upward pressure on rates, all else equal. 

Today I travel to the Dallas area for a Logan Finance event, and this comment from a friend last night is echoing in my ears: “Becoming an adult is the dumbest thing I’ve ever done.” Yes, we have to worry about things like interest rates, tariffs, and politics. Fortunately, interest rates have moved down, but this is primarily due to the increased odds of an economic slowdown. The proponents of a high tax on imported goods say that the U.S. is moving from “free” trade to “fair” trade. Congress has stepped aside, yielding to President Trump, and beginning Thursday night they go on vacation for the rest of the month. Elliot F. Eisenberg, Ph.D., spells it out: “Imports are 11 percent of GDP, and GDP is $30 trillion, making imports $3.3 trillion. As it now stands, the average tariff on imports is 24 percent resulting in $792 billion in tariffs. But there will, of course, be behavioral changes reducing imports. Import price elasticities suggest a reduction of 1/3, getting us to $528 billion, a tax hike of 1.76 percent of GDP, or $1,550/person! A recession is increasingly likely.” On today’s episode of Capital Markets Wrap presented by Polly, they examine the latest tariff updates & impacts, as well as Rocket’s acquisition of Mr. Cooper on base TBA pricing and prepay speeds. (Today’s podcast can be found here and this week’s is sponsored by Figure. Figure is shaking up the lending world with its five-day HELOC, offering borrower approvals in as little as five minutes and funding in five days. Lenders, give your borrowers an experience they will rave about. On today’s hear an interview with Truework’s Ryan Sandler on how AI and advanced machine learning technology can facilitate expedited borrower approvals and streamline processes in the current housing market and economic climate.)