The Mortgage Bankers Association (MBA) didn’t publish updated weekly application numbers last week, which meant that this week’s data had to play catch up with any changes in market conditions.  Even as early as December 18th–the last time the application data came out–the writing was already on the wall due to the rate spike that followed the Fed announcement. If the index had been updated last week, we can safely assume that the index would have already been well on its way lower.  Either way, the most recent tally shows refi demand at the lowest levels since early 2024. Keep in mind, this data is seasonally adjusted, so we’re not merely witnessing a drop in application activity due to the holidays.  It’s a genuine response to the moderate-but-quick rate spike seen in the 2nd half of December.  There are a few silver linings, or at least a few qualifications.  First off, the rate spike leveled off by last week and we haven’t broken to new highs since then. Additionally, there’s no need to worry too much about volatility in refi demand in this range because the overall level of activity is still effectively bouncing along historical lows in the bigger picture.  Only two things will change this: time and/or a much bigger drop in rates than we saw in 2024. Purchase demand keeps chugging along.  Although it also dropped over the past 2 weeks, that drop represented a smaller proportion of the prevailing range–one that’s been relatively narrow and uneventful since bottoming out more than a year ago.

Today’s ISM Manufacturing report was the only top tier economic data this week.  While we wouldn’t say it was “strong” by any means, it wasn’t weak either.  More importantly, it was higher than the previous reading and the median forecast, both for the headline PMI and the “prices paid” component.  That’s a decent enough result to prevent bonds from getting any crazy ideas about rallying back toward the week’s best levels.  Trading levels went from modestly stronger to modestly weaker after the data.

The changes add some steps that would have to be taken before Fannie Mae and Freddie Mac could exit following statements from a Trump ally indicating plans for a near-term release.

The Stamford, Connecticut-based bank hired Steven Sugarman to be its president. The former bank CEO, who now heads one of the country’s largest mission-based lenders, will help drive an effort to close a capital gap.

Bill Ackman, founder of Pershing Square Capital Management, predicts Fannie Mae and Freddie Mac will be removed from conservatorship within the next two years.

The Freddie Mac mortgage rate tracker on Thursday morning showed the conforming 30-year fixed rate mortgage creep closer to the 7% level last seen in May.

Refinance demand fell precipitously as average contract interest-rates for most loans rose in the two-week leadup to Christmas.

The last time mortgage rates were moving with any sense of urgency was in the days surround the Fed’s rate cut on December 18th. Incidentally, that movement was sharply higher, which is just as likely as any other outcome when the Fed is cutting rates for a variety of reasons. The rate rise leveled off by the end of Fed week with the average lender offering top tier conventional 30yr fixed rates near 7.125.  The average is only modestly lower today (7.07) and hasn’t moved much at all since then.   This sort of ambiguity is the default game plan for winter holidays due to changes in bond market participation.  It’s also a byproduct of the available economic data.  In not so many words, the Fed was the last major input, and we won’t get to the next one until next Friday’s jobs report.   Between now and then, moderate movement in either direction is possible, but any significant changes will require a surprise in the data.

Uneventful Start to 2025

Bonds began the day in moderately stronger territory before losing ground after the Jobless Claims data.  AM selling stalled out shortly after bonds hit negative territory and settled sideways to slightly stronger in the afternoon. While that constitutes a reasonably amount of volatility (as did the previous session on Tuesday), the magnitude of the movements has been fairly mild.  All in all, it’s an uneventful start to the new year and a typically boring winter holiday trading environment.  If there’s one thing to focus on, it’s that trading levels are still right in line with the day after Fed day.  If there are two things, the second would be that yields are a bit lower than they were at the end of last week.

Econ Data / Events

Jobless Claims

211k vs 222k f’cast, 219k prev

S&P Manufacturing PMI

49.4 vs 48.3 f’cast, 49.7 prev

Market Movement Recap

09:30 AM Stronger overnight, erasing Tuesday weakness, but backtracking a bit now.  MBS up an eighth and 10yr down 2.5bps at 4.547

11:22 AM Weakest levels now.  MBS still up 2 ticks (.06) and 10yr still down 0.3bps at 4.569

04:13 PM MBS right in line with previous levels, up 2 ticks (.06) and 10yr down 1.3bps at 4.559

Hello 2025, goodbye 2024. It’s been 50 years since Jaws or Godfather Part 2 were on the screens. A half a century since Kung Fu Fighting first graced our airwaves. Despite the turn of the calendar page, the issues bond markets, lenders, and vendors face are the same. “Rob, what’s the word on the street about companies (lenders and/or servicers) making money out there?” Well, to be blunt, there are lenders out there who are earning 25 basis points or more on production without any servicing. Then again, there are lenders eking out a gain with their servicing but losing money without it. Ask your management if your company would be profitable without servicing. If there is one thing that lenders have learned about being profitable without servicing, it is a willingness to hold sales and branches accountable… actually accountable through actions rather than merely talk. Do you want to engage in unprofitable activities just to try to outlive your competition? (Today’s podcast can be found here and this week’s is sponsored by The BIG Point of Sale, which offers a highly configurable, easy to install point of sale solution. Its simplified consumer workflows and web-based portals allow for consumers and loan originators to collaborate with the back-office team to keep everyone informed throughout the loan process. Hear an interview with The Big POS’ Matthew VanFossen on the ins and outs of mortgage technology, from creating valuable products to implementation and training that will help companies maximize success.)