In this week’s update on mortgage applications from the Mortgage Bankers Association (MBA), purchases continued a modest retreat but refinance demand improved for the 2nd week in a row. This was just barely enough for the Refi index to hit the highest levels since October 2024. The uptick makes sense in light of the mortgage rate situation last week.  Rates had been inching slowly to the lowest levels in almost 2 months as of Monday morning. Wednesday brought a a noticeable drop and there wasn’t much of a bounce for the rest of the week. As has been and continues to be the case, all of the volatility seen in the past year represents only a fraction of the longer-term range. Here’s the same refi index over a longer time frame. The purchase side of the market is typically never as responsive to rates in the short term, and last week was no exception. MBA’s purchase app index moved down for the 3rd week in a row, although it’s still closer to the top of the recent range. In the bigger picture, purchase applications suffer from the same jarring adjustment experienced across the housing market with the epic rate spike in 2022. Here’s a breakdown of this week versus last week in several categories of loans in terms of market share:
Refinances

40.2 vs 39.0

FHA Loans

16.0 vs 16.2

VA Loans

14.6 vs 13.3

Survey respondents had 30yr fixed rates at 6.95 with 0.64 points, down slightly from 6.97 in the previous week.  Jumbo loans were down to 6.96 from 7.01 and ARM rates moved up to 6.20 from 6.07.

What a difference the past two mornings have made for a bond market that was seemingly on the ropes on Wednesday. After yesterday’s paradoxical (though, ultimately rational) rally in response to the PPI data, today’s morning momentum came down to the Retail Sales report. Bonds were flat heading into the data, so it’s not hard to imagine that things could have gone either way. As it happened, the data was exceptionally weak, and bonds have moved to the best levels of the week in response.

As rumors of the demise of HMDA reporting swirl, as well as a 50 percent reduction in HUD headcount and actual VA cuts, think about this the next time you go into a grocery store: It’s not like lending is like buying organic meat or produce. More than in most retail transactions, the organic consumer is buying both a thing and an assurance about a thing, and stores shouldn’t misrepresent something. The consumer may be ill-prepared to deal with that. I mention this because a certain segment of the population would prefer that the CFPB vanish. (Elon Musk has his own “connection” with the CFPB: it has a database containing hundreds of complaints about his car company, Tesla, and it regulates digital payment platforms, something Musk is developing at X.) Others are quick to say, “Better the devil you know than the devil you don’t” and remind us that plenty of states will step in. For example, in California, thank you to Scott S. who reminds me that misrepresenting occupancy can be a felony! California’s AB 3108 makes it felony mortgage fraud for a “mortgage broker or person who originates a loan” to intentionally “instruct or otherwise deliberately cause a borrower to sign documents reflecting the terms of a business, commercial, or agricultural loan, with knowledge that the borrower intends to use the loan proceeds primarily for personal, family, or household use” or “instruct or otherwise deliberately causes a borrower to sign documents reflecting the terms of a bridge loan, with knowledge that the loan proceeds will be not used to acquire or construct a new dwelling.” (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. Originators who leverage their Marketing Solutions as part of their customer retention practices have seen their pipelines increase by up to 4 times when compared to traditional lead generation methods. Hear an interview with Verisk’s Kingsley Greenland on how the Los Angeles fires and flooding in North Carolina are altering catastrophe models used for insurance pricing.)

If the government were to end the Fannie Mae and Freddie Mac conservatorships, the new status could constrain CRT deal ratings, as they are counterparties.

Southeast homeowners affected by the storms last fall submitted a combined over 78,500 flood insurance claims to the National Flood Insurance Program.

North American banks face heightened anti-money laundering scrutiny and a few related variables will determine whether or not this leads to more mortgage sales.

A $1 billion assessment announced Tuesday for California’s FAIR Plan, the state-mandated insurer of last resort, is expected to drive up premiums as companies will likely pass some of the costs onto homeowners.

While Freddie Mac’s weekly survey showed 30-year rates falling, other indicators paint a mixed picture for mortgage lenders and borrowers.

What’s Up With Today’s Paradoxical Bond Rally?

PPI may not be as heavy a hitter as CPI on average, but one could make a case for this week being one of the rare exceptions. Strikingly, PPI managed to HELP bonds despite the core annual number coming in much higher than expected. The catch is that January’s numbers were in line with expectations.  More importantly, the components of the PPI data that flow through to PCE inflation suggested bigger drop than expected when we get that data in 2 weeks (core PCE now seen around 0.25% for January as opposed to 0.35% before PPI). Today’s rally didn’t play out all at once like yesterday’s sell-off.  It gathered momentum heading into and out of the conclusion of this week’s Treasury auction cycle.  Nonetheless, PPI deserves most–if not all–of the credit for turning the tide. 

Econ Data / Events

Core Producer Prices, M/M

0.3 vs 0.3 f’cast
last month revised up to 0.4 from 0.0

Core Annual Producer Prices

3.6 vs 3.6 f’cast, 3.5 prev

Market Movement Recap

09:09 AM Modestly stronger overnight and gaining more ground after AM econ data.  MBS up 6 ticks (.19) and 10yr down 5.8 bps at 4.567

12:54 PM Additional gains into the 30yr bond auction time frame.  MBS up 3/8ths in 5.5 coupons and 10yr down 9.2bps at 4.533

03:09 PM More gains into 3pm, but bouncing a bit since then.  MBS up 13 ticks (.41)

Mortgage rates jumped quickly higher yesterday following the higher inflation reading in the Consumer Price Index (CPI). Now today, rates have completely erased the move despite a similar report, the Producer Price Index (PPI) seemingly adding fuel to the inflationary fire. PPI is almost never as big of a deal as CPI when it comes to pushing rates around. That’s still true today, even though rates ultimately moved more than they did yesterday. Specifically, CPI resulted in a bigger, sharper initial move in the underlying bond market that was slowly backtracked afterword. Contrast that to today’s PPI which prompted a bond market shift that was less than half as big, but that happened to be followed by additional, gradual movement in the same direction.  Interestingly, PPI showed much higher annual inflation than expected, and that should have sent rates even higher.  The monthly PPI, however, was on-target.  More importantly, the components of the PPI data that have a bearing on core consumer inflation were much lower.   The bottom line to the paradoxical reaction is that math allows traders to get a really good idea of the forthcoming PCE data (yet another inflation report, and the one the Fed watches most closely) based on CPI and PPI. And in this week’s case, that math says PCE will be lower than previously expected.  When and if that’s revealed to be the case, it would provide a rate-friendly counterpoint to yesterday’s troublesome CPI data.  This is what the market was actually trading this morning as opposed to a PPI reaction in a vacuum.